ISLAMIC BUSINESS TRANSACTION

Y
CHAPTER NINE

BAY· BI-
BI-THAMAN AJIL

MAHYUDDIN KHALID Y emkay@salam.uitm.edu.my

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Y INTRODUCTION
DEFINITION Y DEFINITION
Y EVIDENCE
EVIDENCE Y OBJECTIVE OF BBA
Y PRICING FOR BBA
OBJECTIVE Y CONDITION OF BBA
Y APPLICATION OF BBA
PRICING

CONDITION

APPLICATION


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Y The most popular type of financing
DEFINITION Y The Majallah (mainly Hanafi-bases codification) refers to BBA as
Bay' al-Muajjal. This term is employed in Pakistan.
EVIDENCE Y In Bangladesh, it is known as Bay¶ Muazzal.
Y In the Middle East, a similar practice is used under the term
OBJECTIVE Murabahah.
Y Bay· Bi-thaman Ajil (BBA) or deferred payment sale also called
PRICING Bay a;-Taqsit (Sale with Installment) or Bay· al-Muajjal (Deffered
Payment Sale).
CONDITION
Y However, in Malaysia both terms refer to two different products.

APPLICATION

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Y BBA is a defined as an instalment sale.
DEFINITION Y BBA is a sale contract in which the payment of the price is
deferred and payable at a certain particular time in the future.
EVIDENCE Y It is a contract whereby the commodity is delivered immediately
and the price is paid by instalments.
OBJECTIVE Y The payment is delayed to a fixed and stipulated period of time.
The selling price includes the cost price plus an agreed profit
margin which will increase depending on the length of period
PRICING
over which the deferment is agreed upon.

CONDITION

APPLICATION

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Y BBA is essentially to sell something with a prompt delivery of
DEFINITION sold items to the purchaser while the payment is postponed until
a specified date in the future or through installment (taqsit)
EVIDENCE Y Therefore, BBA can be implicated for other sale contracts
including Musawamah and Murabahah. (not applicable for salam
contract)
OBJECTIVE
Y According to some writers BBA occurs when the payment of
Murabahah is deferred to a certain date agreed upon by the
PRICING parties. It is also possible to say that while in Murabahah the
original cost is disclosed it may not be necessary under BBA. In
CONDITION the Malaysian context the selling price both in Murabahah and
BBA is based on the cost price. However, Murabahah is used for
APPLICATION
short-term transactions while BBA is used for longer term
transactions.


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Y In general, no issue arises from the practice of deferring the
DEFINITION payment of sale price.
Y It is reported in a Hadith by a Companion, Jabir, that the Prophet
EVIDENCE (s.a.w) bought a camel from him outside the city of Madinah
whereby the payment was settled later on in Madinah.
OBJECTIVE Y In another Hadith, it was narrated that the Prophet (pbuh)
purchased a quantity of grain from a Jew on the basis of deferred
payment and he pledged his armour by way of security.
PRICING
Y The dispute arises from the practice of increasing the price due
to deferrment.
CONDITION
Y According to majority jurists inc. Al-Kasani, Ibn 'Abidin, Ibn
Rushd and Al-Nawawi increasing the price due to the deferment
APPLICATION in the payment is permissible because the increase is against the
commodity and not against the money.

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1. To provide financing for potential buyers who could not afford
DEFINITION to pay cash in advance and enable them to perform daily
responsibilities and obligations without any financial hardship
EVIDENCE or difficulties
. To facilitate and support the smooth flow of transaction in the
business society by providing flexible modes of payment
OBJECTIVE
especially through credit payment.

PRICING

CONDITION

APPLICATION

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Y One of the most effective strategy to attract potential clients is the
DEFINITION trader would offer flexibility on how the client could settle the
payment of their purchase.
EVIDENCE Y Instead of paying cash, they could purchase it on credit basis
with the payment made in the future either through installment
or lump sum
OBJECTIVE
Y Common practice for BBA to set higher pricing for product
purchased through deferred payment or installment compared to
PRICING cash payment
Y Meant to compensate traders who are willing to wait little bit
CONDITION longer before they could regain their money back. If they receive
payment in advance, they could use it for other purpose such
APPLICATION reinvest.

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DEFINITION
At a discount ² cheaper Market rate ² based on Higher than normal and
than normal pricing the ability to pay cash Salam pricing
EVIDENCE

OBJECTIVE
Y Strategy for flexible pricing has advantages for seller and buyer:
PRICING Î Traders would be able to attract potential customer by
offering some credit assistance for buyers who are not
capable to pay in full and hence increase their sales.
CONDITION
Î By offering higher price for credit purchase, it is indirect
strategy to encourage buyers to pay cash instead delaying. It
APPLICATION
is not penalty to penalize those who cannot pay in full. It
just considered as justified compensation for traders who
are willing to forego direct payment in return for slightly
higher return.
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Y Few minority scholars against sale of product with deferred
DEFINITION payment at higher price than daily price on the basis that it is
actually part of riba nasiah that being prohibited in Islam
Y Majma· Fiqh Islami concluded that Bay· Taqsit (instalment) is
EVIDENCE permissible in syariah.
Y Majority scholars allowed different pricing for both normal sale
OBJECTIVE and BBA. This permissibility is based on several reason:
1. Scholars such as Ibn Qayyim stated that it permissible since
PRICING element that prohibited (riba, uncertainty(gharar),
gambling(maysir) and ignorance) does not exist in the
transaction
CONDITION . There are no single evidence that prohibits this type of
pricing.
APPLICATION Ñ. The counter-values (cash versus product) differ from each
other compared to ribawi transaction especially ribawi debt
where the counter values are exactly the same (cash versus
cash)

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Y BBA is permitted in Islam only for non-ribawi commodities
DEFINITION Î For ribawi commodities of different category and type since
the exchange of items must be conducted according to the
EVIDENCE principle of spot transactions and within the same contract
session. Any delay in the exchange will transform this
dealing to prohibited transaction.
OBJECTIVE
Y Majority of jurist stated that duration of contract must be clearly
stated in a precise manner whether using Islamic calendar or any
PRICING foreign calendar provided it is realiable.
Y The payment of BBA could be made in several form:
CONDITION
1. Instalment spread over a certain period
. One lump sum in the future
APPLICATION
Ñ. Combination of both provided it clearly stated in the
contract and both parties agreed with term and condition in
the contract.

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Y In classical Islamic law, there is no differences between BBA and

DEFINITION bay· al-murabahah. They simply mean deferred payment sale at
a mark-up.
EVIDENCE Y In Islamic bank practice, they confined BBA to medium and long-
term asset financing and murabahah to short term financing.
OBJECTIVE Y Murabahah is a trust transaction; it require more strict condition
compared to other type of transaction like BBA.
PRICING

CONDITION

APPLICATION

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Y In Malaysia, BBA financing is employed by bank to provide
DEFINITION medium to long term financing to clients for acquiring eg.
Property, land, motor vehicle, consumer goods, shares, overdraft
EVIDENCE facility, education financing package etc
Y House financing is the most popular facility granted under the
concept of Bai Bithaman Ajil (BBA) either to purchase existing
OBJECTIVE
completed houses, build or construct new house on customer·s
land even as a refinancing facility.
PRICING Y In BBA, the customer sells the property purchased to the bank for
a cash sum paid to the customer and the property will then be
CONDITION immediately resold back by the bank to the customer at higher
price which include the bank·s profit on the sale, payable by the
APPLICATION
customer to the bank by monthly installments over a fixed period
of time.

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Y Islamic bank also provides a facility of Overdraft Naqad by using
DEFINITION this type of sale.
Y The operation of overdraft Naqad involves two aqad or contracts.
EVIDENCE Y First, the bank buys the asset from the customer in cash and the
latter sells it in cash as well.
OBJECTIVE Y Then, the bank deposited the money received from the customer
in a designated current account (ASM/D).
PRICING Y The bank controls the money in this account. Therefore, the
customer is actually uses his own money deposited by the bank
in a current account.
CONDITION

APPLICATION

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DEFINITION

EVIDENCE

OBJECTIVE

PRICING Y
CONDITION

APPLICATION

1